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Foreign direct investment and agglomeration: evidence from Italy

  • Raffaello Bronzini

    ()

    (Banca d'Italia)

A number of empirical studies have analyzed the effect of agglomeration on multinational investment, verifying whether the agglomerated areas attract foreign direct investment inflows. Despite the large number of papers, no systematic attempt has been made to disentangle whether FDI are attracted by the concentration of firms within the same sector (specialization) or within different sectors (diversity). Furthermore, the question whether firm size in the host area influences multinational investment is still unanswered. This paper provides empirical evidence of the role of agglomeration economies in attracting foreign direct investments within Italian regions and provinces, distinguishing between specialization and diversity, and of the role of firm size in foreign investors� choices. We employ a new territorial data set on foreign direct investment collected by the Italian Foreign Exchange Office for industrial and service sectors. We find strong evidence that specialized geographical areas attract FDI, whereas diversified areas do so only for industrial sectors; finally, there is little evidence that firm size has an impact on FDI since, if anything, only big firms in southern regions appear to have a positive effect on foreign investors� decisions.

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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 526.

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Date of creation: Dec 2004
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Handle: RePEc:bdi:wptemi:td_526_04
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  1. Robert Dekle, 2002. "Industrial Concentration And Regional Growth: Evidence From The Prefectures," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 310-315, May.
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  6. Keith Head & John C. Ries & Deborah L. Swenson, 1994. "The Attraction of Foreign Manufacturing Investments: Investment Promotion and Agglomeration Economies," NBER Working Papers 4878, National Bureau of Economic Research, Inc.
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  8. R. Paci & S. Usai, 1999. "The role of specialisation and diversity externalities in the agglomeration of innovative activities," Working Paper CRENoS 199915, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  9. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
  10. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-83, November.
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  12. Sergio Mariotti & Lucia Piscitello, 1995. "Information Costs and Location of FDIs within the Host Country: Empirical Evidence from Italy," Journal of International Business Studies, Palgrave Macmillan, vol. 26(4), pages 815-841, December.
  13. Frank Barry & Holger Görg & Eric Strobl, 2004. "Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(3), pages 583-600, September.
  14. Alberto Baffigi & Antonio Bassanetti, 2004. "Turning-point indicators from business surveys: real-time detection for the euro area and its major member countries," Temi di discussione (Economic working papers) 500, Bank of Italy, Economic Research and International Relations Area.
  15. repec:rie:review:v:5:y:2000:i:2:n:2 is not listed on IDEAS
  16. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
  17. Honore, Bo E, 1992. "Trimmed LAD and Least Squares Estimation of Truncated and Censored Regression Models with Fixed Effects," Econometrica, Econometric Society, vol. 60(3), pages 533-65, May.
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